While Pizza Hut Isn't Going Out of Business, One of Its Biggest Franchisees Filed Chapter 11

The COVID-19 pandemic has been tough on many business sectors in the U.S. and abroad, but perhaps no industry has been harder hit than food service. With most restaurants in the U.S. operating for carryout and delivery only, small owner-operated restaurants are shuttering and even large corporate brands are struggling. The latest affected fast food chains seem to be Wendy's and Pizza Hut. With the chains' largest franchisee filing for bankruptcy, many are wondering, are Wendy's and Pizza Hut going out of business?

First off, it's important to understand that Wendy's and Pizza Hut did not file Chapter 11 bankruptcy. NPC International, Inc, a franchisee that operates more than 1,225 Pizza Hut and more than 385 Wendy’s stores across the U.S., did. In total, there are nearly 19,000 Pizza Hut stores worldwide and more than 6,700 Wendy's restaurants worldwide.

Also, bear in mind that bankruptcy doesn't necessarily mean going out of business. It often allows a company whose debts exceed its assets to reorganize and renegotiate repayment terms with their creditors. However, a Chapter 11 filing can lead to a liquidation if the company is insolvent.

As Fortune notes, NPC International can continue to operate as bankruptcy proceedings and reorganization is underway. Meanwhile, other franchisees are not affected. That said, Pizza Hut in particular has definitely undergone some changes recently. The chain has closed several dine-in locations over the past several years as customers increasingly only order takeout or delivery.

They have also faced a lot more competition over the years, as Domino's has improved food quality and sales to become the top chain in the country. Other competitors such as Papa John's and Little Caesars have also taken market share from the Hut.

The bad news for privately-held NPC seems to have had a modest effect on stock prices for YUM! Brands, which is the publicly-traded parent company for Pizza Hut as well as KFC and Taco Bell. However, Wendy's stock was up 2 percent at the time of this writing and on track to close the day up from the previous close of $21.78 per share.

And while NPC may not be doing well, all YUM! Brands chains reported same-store sales growth in May. This figure measures the difference in revenue generated by a chain's existing outlets over a certain period compared to an identical period in the past, usually in the previous year. Though the increase was modest, it is considerable given the challenges of operating during a pandemic where many people are dining out far less than they did last year, even for carryout or delivery.